Recent legislation is bringing continued changes for both business and individual taxpayers in Kentucky. Laws enacted during the 2018 regular session of the General Assembly made major strides to update the Commonwealth’s tax system. For a summary of the 2018 law changes, please read our previous article. House Bills 354 and 458 from the 2019 session of the General Assembly continue the work of reform. The new laws affect corporate and individual income tax, sales and use tax, property tax, as well as other miscellaneous taxes and administrative items.
Key provisions of the new law include the following:
Individual Income Tax (effective January 1, 2019)
- Estimated income tax payments now follow the federal rules, with four equal installments and safe harbor rules to avoid underpayment penalties. For the purpose of avoiding an underpayment of estimated tax penalty, individuals are required to pay: (1) 90% of their current-year estimated Kentucky income tax as estimated tax payments; or (2) 100% of their prior-year Kentucky tax. High-income individuals whose prior-year adjusted gross income exceeded $150,000 ($75,000 if married filing separately) must pay at least 110% of their previous year’s income tax. Due to the late enactment of this change, the Kentucky Department of Revenue will grant transitional relief from the 110% safe harbor for 2019 as long as at least 100% of 2018 tax is paid.
- Investment interest paid to generate taxable income and gambling losses incurred to produce taxable gambling winnings are once again allowable as itemized deductions for Kentucky’s individual taxpayers.
- A new check-off allows individual taxpayers to designate a portion of their refund to the YMCA.
- Kentucky’s corporation income, limited liability entity, and non-resident withholding estimated tax filing rules are now in alignment with the federal rules. Estimated payments are now due April 15, June 15, September 15, and December 15. A corporation or limited liability pass-through entity can avoid an underpayment penalty if total estimated tax payments for the tax year equal or exceed the smaller of: (1) 100% of the current year’s tax liability; or (2) 100% of the preceding year’s tax liability.
- Small businesses in Kentucky will benefit from enhanced deductibility of major asset purchases by increasing the IRC §179 expense deduction from $25,000 to $100,000 per year.
- C corporations are now allowed a 7-month extension to file complete and accurate returns.
- To provide additional clarity, several enhancements to the corporation income tax unitary business filing requirement were enacted.
- C corporations can elect to file “same as federal” consolidated Kentucky returns. The new law shortens the mandatory election period from 8 years to 4 years to match Kentucky’s statute of limitations and to provide more flexibility for taxpayers in a rapidly changing economy.
- Small businesses with property valued at $1,000 or less are no longer required to file tangible personal property tax returns.
- The tangible personal property ad valorem tax statutes were amended to treat heavy rental equipment as inventory.
- All property tax protests can now be filed up to 60 days after a tax assessment is issued or a refund is denied.
- Relief has been provided for non-profit organizations. The new law exempts admissions from sales tax for all charitable, nonprofit civic, governmental, and other nonprofit organizations. Also exempted are sales of property at fundraising events, subject to certain limitations. These provisions became effective March 26, 2019.
- In continued fallout resulting from the U.S. Supreme Court case South Dakota v. Wayfair, Inc., the definition of marketplace provider has been clarified. The remote seller use tax notice requirement was also repealed. The 2018 law change previously allowed Kentucky to collect the sales tax from remote retailers selling tangible personal property or digital property in Kentucky. To be required to collect the tax, the remote retailer must meet one of two thresholds: 1) 200 or more separate transactions in Kentucky in the previous or current calendar year, or 2) Gross receipts exceeding $100,000 in the previous or current calendar year from Kentucky transactions.
- To align with the resale of tangible personal property, a resale exemption is available for taxed services. Additionally, certain large taxpayers can also use Direct Pay permits to self-assess tax on their purchases of taxable services.
- The requirement to collect tax on sales of services is removed for certain small providers. A de Minimis threshold applies if gross receipts are less than $6,000 during a calendar year. This provision is retroactively applied to calendar year 2018 and onward.